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Invest in Maldives

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CTL Strategies ranked in Chambers Global Guide 2024

CTL Strategies has been ranked in the Chambers Global Guide 2024, published by Chambers and Partners.

The new edition of the Global Guide highlighted CTL for its considerable market respect in tax  matters, and demonstrating strength in litigation and corporate services. Among responses received from interviewees, Chamber and Partners quoted that the firm is “able to handle complex matters and provide unbiased legal advice.”

Chambers and Partners is an independent research firm that operates in 200 jurisdictions and is commonly referred to as the “gold standard” in the legal profession. Chambers and Partners publishes rankings and information on the world’s top lawyers and law firms. In-depth interviews with lawyers, in-house counsel for clients, and independent experts were used to compile the rankings.

Recent Updates

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15th Amendment to the Maldives Tourism Act

On 19 March 2025, the President has ratified the 15th Amendment to the Maldives Tourism Act 1 (the “15th Amendment”). Among other areas, the 15th Amendment has brought the following key changes to the Maldives Tourism Act 2 (the “Tourism Act”):

  1. Further extension of the window granted for tourist resorts to pay reduced extension fees for lease extensions;
  2. New requirements to formulate compliance codes;
  3. New standards for the advertisement of tourism establishments; and
  4. Procedure to close tourism properties for redevelopment.

The Amendment also made additional general changes to the Tourism Act which have also been summarised below.

Lease extensions for resort developments

Under the Tourism Act, leaseholders of properties leased for resort development can extend their leases as follows after paying extension fees to the Government:

  1. If the initial lease period was less than 50 years, leaseholders can apply for an extension of the lease to up to 50 years;
  2. If a leaseholder already has a 50-year lease or has extended their initial lease to a 50-year term, the leaseholder can apply for an additional extension of 49 years to up to 99 years.

The 13th Amendment to the Tourism Act3 granted leaseholders of islands and lands leased for resort development a window until 28 February 2025 to pay reduced fees for such lease extensions.

Under the 15th Amendment, a new window for the payment of reduced fees has been granted, starting on 19 March 2025 and expiring on 18 September 2025.

Importantly, the 15th Amendment introduces the following new options to leaseholders:

  • While the Tourism Act did not previously allow leaseholders to further extend 50-year leases for terms less than 99 years, the 15th Amendment has introduced pathways to do so; and
  • The 15th Amendment grants leaseholders the opportunity to pay extension fees in installments.

We have summarised below the options presently available to leaseholders following the 15th Amendment:

  1. Extension of leases up to 50 years:
    • Payment of lease extension fee of USD100,000 for each year of extension if the leaseholder agrees to settle the payment in lumpsum within the new window; or
    • Payment of lease extension fee of USD200,000 for each year of extension if the payment will be settled in full after the expiry of the new window.
  2. Extensions of 50-year leases for an additional 20 years (up to 70 years):
    • Payment of extension fee of USD2,500,000 if the application is submitted within the new window, and if the extension fee will be paid in lumpsum within the new window.
  3. Extensions of 50-year leases for an additional 25 years (up to 75 years):
    • Payment of extension fee of USD3,000,000 if the application is submitted within the new window, and if the extension fee will be paid in lumpsum within the new window.
  4. Extensions of 50-year leases for an additional 49 years (up to 99 years):

    • By lumpsum payment within the new window: Payment of extension fee of USD5,000,000 if the application is submitted within the new window, and if the extension fee will be paid in lumpsum within the new window.
    • Under a 12-month installment plan: If the application is submitted within the new window, the payment of a total extension fee of USD5,500,000, with (i) an initial payment of USD1,500,000 within the new window, and (ii) the payment of USD4,000,000 within 12 months from the date of the application.
    • Under a 24-month installment plan: If the application is submitted within the new window, the payment of a total extension fee of USD6,000,000, with (i) an initial payment of USD1,500,000 within the new window, and (ii) the payment of USD4,500,000 within 24 months from the date of the application.
    • By lumpsum payment after the new window: Payment of extension fee of USD10,000,000.

The Ministry of Tourism and Environment (the “Ministry”) is required to formulate regulations on the process for the payment of lease extension fees in installments under the 15th Amendment.

In addition, if a leaseholder applies to the Ministry to pay for a lease extension in installments, the lease extension will only take effect after the payment has been settled in full. If the payment is not made within the required period, the application for the lease extension will be terminated. Under such circumstances, the amounts already paid to the Government will not be refunded to the leaseholder, but may be set off against the amounts to be paid by the leaseholder as lease rent.

Compliance Code

The 15th Amendment requires tourism establishments to formulate a compliance code (the “Compliance Code”) which covers the safety and operating standards of each service area of the establishment. The deadline provided to tourism establishments to formulate Compliance Codes is 18 March 2026.

The Ministry is required to put together the minimum standards required to be met by Compliance Codes formulated by tourism establishments.

Advertising rules

For the first time, the 15th Amendment has also introduced rules regulating the promotion and advertisement of tourism establishments.

While detailed rules are set to be stated in regulations to be put together by the Ministry, the 15th Amendment provides the following basic requirements:

  1. The establishment can only be advertised as the type of tourist facility stated in its Registration Certificate and/or Operating Licence.
    (E.g., a property registered with the Ministry as a tourist guesthouse cannot be advertised as a tourist hotel).
  2. If the Ministry has declared that a tourism establishment is of a particular level or category, the establishment cannot be advertised as falling under a different level or category.
    (E.g., if the Ministry at any time introduces any classification or rating system for tourism establishments, the establishment can only advertise itself under the classification or rating issued to it by the Ministry).
  3. The establishment must ensure the completeness and accuracy of information provided by the establishment on:
    • The tourism establishment and the services provided at the establishment.
    • The natural environment surrounding the tourism establishment or of any area of the Maldives.
    • The area surrounding the tourism establishment and the services available in that area.

While tourism establishments registered at and licensed by the Ministry have the automatic right to advertise themselves in compliance with the applicable rules, properties under development are required to obtain the approval of the Ministry before advertising the property.

Rules on closing for redevelopment

While the Regulation4 issued by the Ministry on the extension of construction periods and the granting of rent and fine deferrals (the “CP Extension Regulation”) already states that a redevelopment period can only be granted for a tourism establishment under an amendment to the lease agreement of the property5, the 15th Amendment has expressly incorporated this requirement into the Tourism Act.

The 15th Amendment states that the Ministry has the discretion to terminate the lease agreement and take steps against the lessee if a tourism establishment is not redeveloped and reopened within the redevelopment period granted by the Ministry6. In addition, the 15th Amendment specifies that the Government will not be required to compensate the leaseholder if a lease agreement is terminated for this reason.

General changes

Allocation of uninhabited islands and lagoons within the jurisdiction of local councils for tourism purposes

The 15th Amendment provides that local councils can allocate land falling within their jurisdiction for the development of tourist hotels and tourist guesthouses in their Land Use Plans.

However, uninhabited islands and lagoons falling within the jurisdiction of local councils can only be designated for development for tourism purposes by the President.

Updated purposes for which properties can be leased as cross-subsidy

Prior to the 15th Amendment, properties could only be leased as cross-subsidy for implementing or financing significant projects under either economic or social policies of the Government.

However, under the 15th Amendment, islands can also be leased as cross-subsidy for implementing or financing projects under any other important policies determined by the Government.

Tourism trust fund

For the first time, the 15th Amendment has introduced detailed rules relating to the establishment of a tourism trust fund, including rules on its management, expenditure and investment.

The 15th Amendment abolishes the tourism industry trust fund established under the Public Finance Act7 and transfers all existing assets of the fund to the newly established tourism trust fund.

Updates to defined terms

Under the 15th Amendment, the defined term “Hotel” has been replaced with the term “Tourist Hotel”, which is now defined as a facility prepared on a part of an island for accommodating tourists, with arrangements made for lodging and meals, and which has certain facilities determined by the Ministry. This term is stated in the 15th Amendment to exclude tourist resorts, resort hotels, and tourist guesthouses.

In addition, the definition of the term “Tourist Guesthouse” has been updated to reflect that tourist guesthouses can be developed on land leased by local councils.

Deadline for regulations

The Ministry is required to make any required changes to existing regulations necessitated by the 15th Amendment, and to formulate any new regulations required under the 15th Amendment, by 18 June 2025.

Effective Date

The 15th Amendment became effective on 19 March 2025.

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MIRA Proposes Significant Changes to Income Tax Regulation

The Maldives Inland Revenue Authority (“MIRA”) has released a draft of the Sixth Amendment to the Income Tax Regulation (“Amendment”), proposing several significant changes that could impact businesses across various sectors, particularly those in the tourism industry.

Staff accommodation as a taxable benefit

The Amendment introduces a critical distinction for accommodation benefits provided to employees. According to the proposed changes, if accommodation is provided exclusively to an employee, where the employee has access to an exclusive bathroom not shared with other employees, such accommodation will be treated as a non-cash benefit subject to employee withholding tax regardless of its size or standard. This reclassification could have substantial tax implications for resorts and other tourist establishments where employee housing arrangements often include private bathroom facilities.

The Amendment also proposes a new formula for calculating employee accommodation benefits at tourist establishments. For resorts, integrated tourist resorts, resort hotels, picnic islands, private islands, yacht marinas, and hotels or guesthouses on uninhabited islands, the monthly value of employee accommodation would be calculated using the following formula:

A × 2% × (1/12)

Where A represents the purchase price of the accommodation.

Capital allowance rates for buildings located in tourist establishments

Additionally, the draft Amendment introduces a significant change to capital allowance rates for buildings. While the current rate of 4% applies to all buildings until 31 December 2024, the proposal is to reduce this to 2% specifically for buildings at tourist establishments ( tourist resorts, integrated tourist resorts, resort hotels, picnic islands, private islands, yacht marinas, hotels on uninhabited islands, or guesthouses on uninhabited islands) starting 1 January 2025. This reduction effectively extends the depreciation period for these assets, potentially increasing taxable income for resort operators.

Finance lease criteria

The draft Amendment also introduces comprehensive criteria for classifying leases as finance leases for tax purposes. Under the proposed section 72-2, a lease would be considered a finance lease if it meets any of the eight specific conditions outlined below.

Criteria for finance lease classification
1. The lease transfers ownership of the asset to the lessee either before or at the end of the lease term.
2. The lessee has an option to purchase the asset at a price significantly below the fair market value, and it was reasonably certain at the lease inception date that the option would be exercised.
3. The lease term covers a major part of the asset’s economic life, even if ownership is not transferred.
4. At the lease inception date, the present value of minimum lease payments amounts to substantially all of the leased asset’s fair value.
5. The leased assets are so specialized that only the lessee can use them without major modifications.
6. If the lessee cancels the lease, the lessor’s losses associated with cancellation are borne by the lessee.
7. Gains or losses from fluctuations in the residual fair value accrue to the lessee.
8. The lessee can continue the lease for an additional period at a rent substantially below market rates.

While the criteria are similar to the conditions provided in Paragraph 63 and 64 of IFRS16 for lessor classification of leases, under IFRS 16, these conditions serve only as indicators rather than definitive criteria for determining lease classification. The standard requires a holistic assessment of all relevant factors to conclude whether a lease should be classified as a finance lease or an operating lease.

Foreign currency and registration requirements

The draft Amendment introduces significant changes to how businesses determine and apply functional currency rules for tax purposes. Under the proposed section 105-1, a person’s functional currency would be defined as the currency in which more than 50% of their total income was received in the tax year immediately preceding the tax year to which the accounting period or tax return relates.

This represents a departure from the current approach which relies on International Accounting Standard (IAS) 21 criteria for determining functional currency. Instead of applying the broader qualitative assessment under IAS 21, the Amendment proposes a simpler, quantitative approach based solely on the predominant currency of income in the preceding year.

For new businesses in their first tax year, the functional currency would be the currency in which more than 50% of their total income is expected to be received during that year.

Other significant proposals include specific rules for recording foreign currency transactions, using exchange rates within 2% of official rates published by the Maldives Monetary Authority, and expanded registration requirements for businesses that must withhold taxes from payments to non-residents.

Criteria for cash basis accounting and auditor’s report exemption

Currently, individuals and entities can prepare their accounts on a cash basis if their total annual income does not exceed MVR10 million. However, the proposed Amendment specifies that both total annual income and the total value of non-current assets must not exceed MVR10 million to qualify for cash basis accounting.

This change may impact rental income earners opting for the special deduction against rent from immovable property under section 28(a) of the Income Tax Act1, as this special deduction can only be claimed if the accounts are prepared using the cash basis.

Furthermore, the proposed Amendment changes the criteria for businesses to submit an auditor’s report. As per the current rules, businesses with an annual total income of MVR10 million or less are exempt from submitting an auditor’s report. However, under the new rules, a business will only be exempt if both its total annual income and the total value of its non-current assets fall below MVR10 million.

Opportunity for public comments

As these changes are currently in draft form and open for public consultation, stakeholders have an opportunity to provide feedback before they are finalised. Industry associations and businesses, particularly in the tourism sector, are encouraged to review the proposed amendments and submit comments.

The public consultation period is expected to close on 15 April 2025.

Our firm is actively analysing these proposed changes and will be providing detailed guidance to clients on potential impacts and strategies for adaptation. Businesses concerned about these amendments are encouraged to contact our advisory team for personalised assistance.

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CTL Strategies ranked in Chambers Global Guide 2024

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